Zetland: Will San Diego make the desalination mistake?

[by David Zetland, senior water economist at Wageningen University in the Netherlands and publisher of the Aguanomics blog. Reprinted with permission.]

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Poseidon Resources has been lobbying to build a desalination plant in Carlsbad (San Diego County), California for around a decade, and I’ve been skeptical of that proposal (earlier posts) — mostly because water consumption in San Diego is still quite high (ranging from 100-300 gallons/capita/day; compare that number to Sydney or Melbourne at 50 gcd!).

It makes more economical and environmental sense, in other words, for San Diego to reduce its demand before going for more supply (this year-old analysis of their supply alternatives [pdf] lists desalination at $1,600/af but that cost is now up to $2,000+/af).

Those are just some preliminary comments and opinions based on my observations over the past 7-8 years, but there are some new developments that make these comments even more relevant.

First, the San Diego Country Water Authority is thinking of signing a 30-year water purchase agreement to buy water from Poseidon, an agreement that will make it possible for Poseidon to borrow money from the State of California (!) for constructing the plant.

Second, that agreement does not specify how much equity (“skin in the game”) Poseidon will bring to the table in financing the $900 million project, but it DOES specify how much money Poseidon will receive for “overseeing” a project that it will neither design, nor construct, nor operate.

Third, it appears that SDCWA will pay about $3.2 billion over 30 years for water that will be twice as expensive as its existing water supplies from Met. Given the industry-norm of charging average cost for water, that means that SDCWA will be selling water it buys for $2,000 per af for about $1,200 per af. Try swinging that business model past Wall Street. (The Independent Rate Oversight Committee sure doesn’t like it! [pdf])

Bottom Line: San Diego should not build a desalination plant because it would be an expensive non-solution to water reliability problems that are actually caused by poor management of regional water at Metropolitan and a failure to restrict demand to sustainable levels.